Where Do We Go from Here? - 11/11/24

Tune in to learn about what happened last week, including the election and Fed announcement, as well as what happened around the rest of the world!

Transcript

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Intro song game on. Hello, everyone. Welcome to paramount wealth perspectives. Your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. Each week we strive to bring you expert analysis on market trends, economic shifts. And key financial developments from around the world. Whether you're an investor business leader. Or simply curious about the global economy. Our podcast is here to keep you informed and ahead of the curve. Now let's dive into the markets and explore what shaping the world of finance today. Here with us today. We have Scott Tremlett chief investment officer and managing partner at paramount associates, wealth management. Scott. Looking back to last week. What are some major events you would like to highlight? Thanks, Chris. Us stocks were higher for the week with the S and P 500 and NASDAQ. Ending the week at record highs. The Russell 2000 had its best week since March of 2020. All sectors were higher. With the standouts being big tech banks, investment banks, credit cards, auto suppliers and airlines. Under-performers included dollar stores. China tech toys, pharma, athletic apparel, and food and beverages. Other headlines include a preliminary university of Michigan consumer sentiment report. Which came in at its highest level in six months. The number itself increased at its fastest monthly clip in nearly four years. Included in that report. Consumers 12 month inflation expectations actually ticked down to the lowest level since the pandemic. October us services, beat expectations with its highest print since July of 2022. Last week, we also had a glimpse into the global economy. With our final service numbers and composite numbers coming in from around the globe. Our paramount global rankings were updated just today. Well, I have to say it's encouraging to see the S and P 500 and NASDAQ reach, record highs. And I'm interested to hear more about the updated paramount global rankings. Can you please explain what that is to our listeners. Of course I can, Chris. Paramount global rankings is an economic ranking evaluation that allows me to research different areas of the globe for investment ideas. There are two sides to the model. When I call current power, that is simply apples to apples, whose number is bigger. And then there's momentum. Momentum allows me to analyze trends. Depending on where I feel we are in the economic cycle. Either current or momentum may hold greater importance. I utilize the rankings to guide specific strategic top-down or big picture decisions in asset allocation. I don't want to spend too much time on this today. But in future podcast, I'm certain I would dig deeper into the trends and to the results. Thanks for that, Scott. I'm sure a lot of listeners will be interested to hear how paramount global rankings provides a strategic data driven approach to asset allocation. Now last week you mentioned there were some upcoming labor reports, as well as earning reports. Can you please elaborate on those? As for jobs. Initial jobless claims were inline with consensus. And continuing claims we're above consensus. In fact continuing claims were the highest in nearly three years. As for earnings the last two weeks have been the busiest period for S and P 500 earnings. And as of Friday, 91% of the index had already reported. Earnings growth overall ticked up a bit for the week. And now stands at 5.3% growth versus the 4.3% growth that happened expected. Here are some fun stats. The number of companies reporting earnings per share above estimates is below the five-year, but equal to the 10-year average. The number of companies reporting revenues above estimates is below both the five-year and 10-year average as well. They're earning beats. Are averaging just 1.2% above estimates, which is below both the five-year and 10-year average. Wow. That's interesting to hear that earnings per share are trailing historical averages. Now as you have stressed the importance of the federal reserve before. Can you please elaborate more on their announcement from last week? Yes, Chris, the federal reserve met last week and cut rates by a quarter point. Their policy statement was little changed. However, the fed did delete the statement that the committee had gained confidence that inflation is moving sustainably towards their 2% goal. Jerome Powell stated that economic activity has been stronger than expected. And the fed will have to wait and see where the data leads them before deciding on policy in December. Markets are now pricing in a 30% chance that the fed leaves rates unchanged in December. Up from 17% the previous week. The committee also emphasized that labor market conditions had generally eased. Replacing a previous reference to slowing job gains. Elsewhere central banks were also active in the UK, the bank of England cut rates by quarter point. This was expected. The bank of England noted significant upwards revisions to both its growth and inflation expectations. Moving over to emerging markets. China policy makers announced a package to offset local government's debt problems. And provided forward guidance. I'm future policy support for bank recapitalization consumption and the property sector. Understood. It sounds like the fed will continue to let data guide their decisions in December and moving forward. Looking to the other major event last week that everyone is speaking about. Can you please discuss the elections implications? Yes, Chris. And then there was the election. Donald Trump, the Republican nominee defeated Kamala Harris, vice president, and the democratic candidate in Tuesday's vote. I have been in conferences since the election regarding the potential market impact of a Trump presidency. Let's keep in mind that campaign rhetoric often does not match actual policy. This time around, however, Trump will not be restrained by divided government. Also, he can't run on a third term, so he doesn't have to support policies just to get reelected. I don't want to dig too deep into the weeds here as a guest speaker. And I will discuss this more in the coming weeks, but here are some of the expectations this time around. First. Last time Trump did tariffs on China, be executive order, and this could be immediate in 2025. We'll see how this plays out, but initial expectations are for more inflation in the us, and it may also force Chinese policy makers to make quicker and more drastic. Fiscal policy moves to offset any decline in foreign consumption. Tariffs may be short term, depending on how they're classified. They may hold longer term. It they're looked at as a funding source to offset reductions in taxes. Next we do have taxes and regulations. Tax cuts. We're set to expire at the end of 2025 should be extended. Also should Republicans win a majority in the house? The corporate tax rate could potentially drop from 21% to 15%. For domestic manufacturers. One report. I read estimates that proposed tax cut itself may boost S and P earnings by almost 4%. As far as regulation or deregulation. That is really driving market expectations for financials. Namely asset managers. Do the possibility of more MNA and IPO's as the election overhang lifts from the markets. I will say lastly, but I'm not sure that this will be the last thing that comes up there is immigration and the extent of the deportation policies. Keep in mind, those workers jobs will have to come from somewhere no matter what. This may lead to wage growth with less workers in the workforce overall. And I think I would say this for either candidate in different ways. Proposed policies are inflationary in this case. Inflation may be caused by a tighter job market. And tariffs. Well, you make it clear that this new Trump administration could bring significant shifts in tariffs taxes. And regulations. All of which are likely to have a profound impact. On inflation, corporate earnings and even labor markets. So, what does this mean for market expectations? So far, Chris inflation expectations have driven up interest rates. And strengthen the dollar. As a more resolute, better reserve is anticipated. Consequently, the number of fed rate cuts projected for 2025 has dropped to just two down from four in mid-October. There are some possible shifts in investment strategy. Considering the possibility of less globalization. And more policy uncertainty that is really expected to drag on both Chinese and European growth. As these areas seem most vulnerable. Overall to end on a positive. The current economic environment is favorable for stock markets. Rates coming down at all and real wage gains help an American consumer that continues to spend. That makes sense. And it sounds like an active investment management approach is imperative during times like these. What major events are you looking at this week? Scott? This week, we have two big inflation reports in the U S and Friday. We have retail sales, which I pay close attention to. We have fed chair Powell, governor Waller. And New York fed president Williams scheduled to speak. China publishes a range of economic reports. And the UK gives a snapshot of growth on Friday. Earnings are slow this week. With just nine S and P 500 firms reporting. Well, we will certainly keep on the lookout for those reports and I'm sure we will have plenty to discuss next Monday. For now. Stay informed. Stay ahead. And join us next week for more key updates shaping the global economy. Thank you for tuning into paramount wealth perspectives. We hope you have a fantastic week.